In 2017, the Department of Labor (DOL) scrapped U.S.-wide plans to increase the salary threshold for exempt employees following challenges from multiple states. The DOL has continued to postpone these plans, however, the states of California and New York have elected to raise their own exempt salary threshold for 2019, which means that some of your workers may be eligible for overtime pay.
The changes, which go into effect on December 31, 2018, in New York and on January 1, 2019, in California, are as follows:
- In New York state, increase the salary exempt threshold from $40,560 to $43,264
- In Nassau, Suffolk and Westchester counties, increase the salary exempt threshold from $42,900 to $46,800
- In New York City, increase the salary exempt threshold from $50,700 to 58,500
- Increase the salary exempt threshold from $45,760 to $49,920
- Increase the IT exemption from $90,790.07 to $94,603.25 (or $45.41 hourly rate)
Who will the changes impact?
If you have workers in these states that are currently overtime exempt and you pay salaries less than the amounts above, these changes apply to you. As a next step, you’ll need to restructure your compensation plan or start paying overtime. We know that for many roles, including recruitment, it’s common to pay a worker a low base rate and then incentivize sales behavior through commissions. While it’s still possible to pay workers through commission after the increases are implemented, you may need to consider increasing workers’ salaries to avoid paying overtime.
Below are some changes that you may want to consider for your salaried employees:
- Overtime exempt (Option 1) – Increase workers’ salaries to the amounts above and pay commissions and bonuses on top. You are allowed to reduce workers’ commissions and bonus structures, however, we strongly suggest that any issuing of new contracts with new changes has the correct language and is updated as required.
- Overtime exempt (Option 2) – If your workers are paid through a mix of both salary and commissions, you may be able to establish a program for a guaranteed draw against commissions. In this way, the draw on commissions would generally count towards the minimum salary threshold. For more information about how to accomplish this, please visit the commissions FAQ page on the New York State DOL website.
- Pay Overtime – You can maintain workers at their current salaries and convert to an hourly rate. Workers will be required to submit timesheets and receive overtime as required in the state of employmentYou’ll want to consider building your figures correctly to take into account public holidays, PTO and holiday pay, and how this flows through to the rate.
Points to Remember
- A worker can only have 10 percent of their “base salary” be commissions. This 10 percent cannot be withheld if the worker doesn’t meet targets and will have to be paid regardless.
- There is no salary threshold for outside sales employees. These are employees with primary duties of making sales and who are customarily and regularly engaged away from the place of business. If your business development and sales staff do not work from a central location they may be exempt from the upcoming changes.
- It is advised that you have a strong plan of action and work with your compliance/legal team to prepare for the changes.
- You are legally allowed to change your workers’ pay structure, but make sure you clearly communicate these changes and how they will be affected. You’ll also need to make sure that any changes issued are 100 percent compliant with the new law.
- If you don’t comply by the stipulated date you could face penalties, fines and legal action from the state and federal governments.
- It is important to note that although the DOL issued a notice of proposed rulemaking stipulating that they will likely increase the federal rate sometime in 2019, as of November 2018 it has not gone into effect.
Potential Exposure for Overtime that You Could Face
New York: Any hours over 40 per week would be time and a half.
California: Any hours over eight per day are at time and a half and any hours over 12 per day are double time. If a worker is working more than six consecutive days, the seventh consecutive day is to be paid at double time.
In short, there are some key changes that all employers in New York and California need to be aware of in 2019. It is vital that changes to the salary exempt thresholds are adhered to ensure business aren’t hit by potentially sizeable state fines.